Mohamed El-Erian, the chief economic adviser at Allianz, issued a stark warning on Thursday that investments in some AI-related names will “end up in tears,” even as he categorized the boom as a “rational bubble.”
A ‘Rational Bubble’ With Limited Winners
El-Erian argued that while AI is a “major transformational general purpose technology” akin to electricity, the current market frenzy is pulling weaker companies up alongside a “limited number of winners,” he told CNBC.
“It’s rational because everybody has an incentive to overinvest in AI because the payoff is so huge,” he stated. “But you’re going to have a relatively limited number of winners. So there’s going to be some losers in there.”
Erian Outlines 4 Major AI Risks
El-Erian distinguished this from an “irrational bubble,” like the dot-com crash, noting that while AI’s impact is real, the “first phase” of major innovation always involves overinvestment.
He also highlighted four major risks the U.S. is “not handling well”: the lack of a “diffusion policy” to spread productivity, the threat of “bad actors,” the eventual handling of the bubble, and the focus on “labor displacement versus labor enhancement.”
He warned that if displacement remains the focus, public support for AI could “evaporate.”
Michael Burry Sends A Cryptic Message On AI
El-Erian's warning lands in the middle of a fierce debate. ‘Big Short’ investor Michael Burry recently issued a cryptic warning that “the only winning move is not to play.”
Other bears, like GQG Partners, have called the market “Dotcom on steroids,” and the Bank of England has cited an “AI valuation bubble” as a key global risk.
Conversely, JPMorgan CEO Jamie Dimon has dismissed bubble talk, comparing AI to the internet’s dawn, while Goldman Sachs argues high valuations are supported by strong fundamentals.
How Can Investors Play The AI Theme?
Here are a few AI-linked exchange-traded funds that investors can consider.
| ETF Name | YTD Performance | One Year Performance |
| iShares US Technology ETF (NYSE:IYW) | 30.27% | 37.93% |
| Fidelity MSCI Information Technology Index ETF (NYSE:FTEC) | 27.49% | 36.30% |
| First Trust Dow Jones Internet Index Fund (NYSE:FDN) | 14.31% | 26.91% |
| iShares Expanded Tech Sector ETF (NYSE:IGM) | 30.71% | 39.87% |
| iShares Global Tech ETF (NYSE:IXN) | 30.88% | 37.11% |
| Defiance Quantum ETF (NASDAQ:QTUM) | 37.91% | 82.49% |
| Roundhill Magnificent Seven ETF (BATS:MAGS) | 23.62% | 41.07% |
The market remains volatile amid the skepticism. The S&P 500, up 16.25% in 2025, hit a new 52-week high of 6,920.34 this week. However, the optimism was checked on Thursday as the tech-heavy Nasdaq 100 fell 1.47% to 25,734.81, before futures pointed to a recovery on Friday.
Read Next:
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga
